By Dr Tomasz Karol Wiśniewski, ESG manager, PZU
Extreme weather events, such as heatwaves, storms, hailstorms, hurricanes, floods, droughts, and fires, are increasingly becoming a part of our lives. In the early 1980s, an average of 79 natural disasters were recorded worldwide each year, but in the last decade, that number has increased to an average of 186. Financial losses associated with the impacts of these extreme events have also significantly increased. It is estimated that global losses resulting from these phenomena reached $193 billion in the last decade. In the case of our country’s economy, direct losses from such events amounted to approximately 115 billion zlotys in less than two decades. Therefore, it is crucial to take all actions aimed at climate adaptation, which prepare the world for extreme situations in terms of infrastructure, budget, and insurance.
The observed trend is undoubtedly long-term, which is why better prediction and specific preventive actions are necessary. Improved prediction of climate risks allows for better alignment of insurance protection. Insurance companies are increasingly using new technologies such as artificial intelligence, satellites, and drones because traditional valuation methods based on the analysis of historical events do not allow for a proper assessment of climate change. The complex nature of climate risk presents insurers with the challenge of developing new insurance products that will adequately reflect the frequency of catastrophic events and have an impact on their pricing. As research shows, the effects of climate change will affect economic development and the well-being of societies.
The key role of insurers
The insurers play an important role in climate protection. According to the analysis by the PIU, the Polish Insurance Chamber, between 2016 and 2021, insurance companies reported 273 catastrophic events to the Financial Supervision Commission and paid over 3.6 billion złotys in compensation. The most significant damages resulting from these events were caused by heavy rains, flooding, storms, hailstorms, and hurricanes. Tragic events have also occurred this year in Lower Silesia. Due to heavy rainfall and rising water levels in rivers, many towns and villages were flooded, resulting in material and human losses.
In such situations, a quick response from insurers is crucial, aiming to support their clients and take preventive actions to avoid such situations in the future. PZU, as a market leader in insurance in Poland, has the necessary means and procedures to effectively respond to crisis situations. Recently, we mobilised all resources and were ready to assist our insured before the floods occurred. We warned customers, implemented pre-service procedures, and established a fast claims handling process. Furthermore, the company set up a special team responsible for coordinating actions in flood-affected areas. The team’s task was to monitor the situation, provide assistance to the affected individuals, and promptly process damage claims. Fast compensation payments were also a significant support for flood victims. Thanks to flexible procedures and automated systems, PZU was able to expedite the claims processing and provide compensation as quickly as possible.
In the context of climate change, insurers are conducting research on its impact on their business operations. They analyse the risks associated with these changes and appropriately adjust their products and strategies. Parametric insurance is an example in this regard, aiming to provide compensation in the event of specific weather conditions, such as rainfall or wind speed. A crucial aspect of insurers’ activities is also a swift and effective response to the consequences of extreme weather events. Special teams are formed to handle claims settlement and assist affected individuals. Additionally, initiatives are undertaken with local authorities and charitable organizations to provide necessary support and aid in the rebuilding of communities affected by natural disasters.
In parallel with operational activities, insurers continuously engage in various educational initiatives. These companies conduct educational and informational campaigns to raise awareness about climate change and related risks. These actions are aimed at increasing customers’ and society’s awareness regarding the necessity of climate protection and adaptation to changes. These efforts also encompass any other initiatives supporting more sustainable practices in the insurance sector, such as promoting building safety, investing in renewable energy sources, and supporting adaptive actions.
These standards undoubtedly include PZU’s current insurance offerings. Within property insurance, PZU provides a product dedicated to buildings with an energy certificate, promoting energy efficiency and sustainable solutions in the real estate sector. One of the sectors most vulnerable to climate risk is agriculture. As a leader in this market segment, PZU currently insures approximately 2 million hectares of farmland in Poland against the risk of random events such as floods, hurricanes, hailstorms, heavy rainfall, or lightning strikes. This coverage includes crops, farm buildings, movable property, and livestock.
The actions taken by insurance companies have a significant impact on climate transformation. This process is achieved through innovative product offerings and financing projects related to transitioning to a low-emission economy.
PZU actively engages in sustainable development initiatives through the continuous development of ESG (Environmental, Social, and Governance) product offerings that comply with the highest environmental, social, and governance standards. The current offering includes insurance related to energy transformation in areas such as onshore wind farms, offshore wind farms, biogas plants, and photovoltaic installations. Within PZU’s motor insurance offerings, customers can benefit from the ‘green car’ option, which rewards those who own low CO2 emission vehicles. Additionally, customers who have experienced an accident resulting in the need for vehicle repairs lasting at least seven days can choose a replacement car or a bicycle. This programme aims to promote a healthy lifestyle, environmental care, and the reduction of emissions. Such an approach also seeks to encourage customers and partners to develop their businesses more sustainably. This is achieved through raising climate awareness and developing products for entities that support low-emission technologies.
Investment
Investments have become an integral part of the transformation support process, primarily influencing the mitigation of climate change impacts. From conducted analyses, it is evident that global efforts in planning, financing, and implementing adaptation are making progress, but they still lag behind the growing climate threats. Achieving better results in this regard requires accelerated innovative planning, increased and improved financing, enhanced monitoring and evaluation, and deeper international collaboration.
In its sustainable development strategy for 2021-2024, PZU has prioritised increasing its engagement in investments that support climate and energy transformation. According to the initial assumptions, financial resources of 500 million złotys were to be allocated to such initiatives by 2024. However, by the end of 2023, the value of financing in this area had already reached 2.6 billion złotys. During this time, PZU have participated in several large onshore wind projects, contributing a total of almost 420 million złotys to their financing. The annual production of wind farms financed by the PZU Group is expected to provide green electricity for over 800,000 households in Poland. Additionally, PZU’s TFI (Towarzystwo Funduszy Inwestycyjnych) introduced passive funds, including the inPZU Green Energy Sector Stocks fund, allowing anyone to invest in leading global companies in the renewable energy sector. PZU continuously seeks new and exciting projects, aiming to invest in those related to renewable energy sources, ecological infrastructure, and sustainable social development.
Conclusions
Insurance plays a crucial role in mitigating the impacts of future disasters caused by climate change. From conducted analyses, it is evident that global efforts in planning, financing, and implementing adaptation are making progress, but they still lag behind the growing climate threats. Achieving better results in this regard requires accelerated innovative planning, increased and improved financing, enhanced monitoring and evaluation, and deeper international collaboration. Through these efforts, insured businesses protected against disaster risks can more effectively return to normalcy, facilitate faster economic recovery during periods of reduced production, and have a positive impact on the economic security of affected regions.
